U.S. Oil Wants
To Work in Iraq

Concerns Discuss How to Raise
Output After a Possible War

HOUSTON -- Facing a possible war with Iraq, U.S. oil companies are starting to prepare for the day when they may get a chance to work in one of the world's most oil-rich countries.

Executives of U.S. oil companies are conferring with officials from the White House, the Department of Defense and the State Department to figure out how best to jump-start Iraq's oil industry following a war, industry officials say.

With oil reserves second only to Saudi Arabia's, Iraq would offer the oil industry enormous opportunity should a war topple Saddam Hussein. But the early spoils would probably go to companies needed to keep Iraq's already run-down oil operations running, especially if facilities were further damaged in a war. Oil-services firms such as
Halliburton Co.
, where Vice President Dick Cheney formerly served as chief executive, and
Schlumberger Ltd.
are seen as favorites for what could be as much as $1.5 billion in contracts.

Girding for War

See an interactive map of the Mideast detailing U.S. military preparations for a possible war with Iraq.

The major oil and natural-gas producers won't be far behind. "Iraq is rich in potential," said Fadhil Chalabi, a former acting secretary-general of the Organization of Petroleum Exporting Countries and an Iraqi oil official who now is executive director of the Center for Global Energy Studies in London. "There will be room for everybody."

While the Bush administration is loath to be seen as waging war for oil, industry officials say Washington is leaning heavily on the expertise of the U.S. oil industry so that it is prepared to address its top postwar priority: funding a new Iraqi regime with oil revenue.

"If we go to war, it's not about oil," says Larry Goldstein, president of the Petroleum Industry Research Foundation in New York. "But the day the war ends, it has everything to do with oil."

Iraq produces 2.8 million barrels of oil a day, although its infrastructure has had little investment since the 1980-88 Iran-Iraq war and the 1991 Gulf War. What's more, Iraq is thought to have done considerable damage to its three large oil fields in recent years with on-again, off-again production; reports say the country's pipelines, ports and pumping stations are in a state of disrepair.

Industry experts say that with some attention, such as modernizing the injection systems of waterlogged wells, Iraq could be producing an additional one million barrels of oil a day during the course of two years. With serious investment, they say, it could be producing six million barrels a day within five years. By comparison, Saudi Arabia, the world's biggest oil producer, had output of 8.05 million barrels a day in December.

The Bush administration is eager to secure Iraq's oil fields and rehabilitate them, industry officials say. They say Mr. Cheney's staff hosted an informational meeting with industry executives in October, with
Exxon Mobil Corp.
,
ChevronTexaco Corp.
,
ConocoPhillips
and Halliburton among the companies represented. Both the Bush administration and the companies say such a meeting never took place.

Since then, industry officials say, the Bush administration has sought input, formally and informally, from executives and industry experts on how best to overhaul Iraq's oil sector. An industry expert said Tuesday that State Department officials met with as many as two major oil companies and an industry consultant as recently as last week.

One scenario has Iraq's oil fields emerging from a war unscathed. But should Mr. Hussein torch his fields in defiance, as some have suggested, industry experts say construction firms such as Bechtel Group would likely play a role in rebuilding the Iraqi industry. Such companies played a large role in rebuilding Kuwait's oil industry after Mr. Hussein destroyed it during the Gulf War.

In the case of a U.S.-led military victory, a Deutsche Bank report predicts, Halliburton and Schlumberger would land deals to upgrade wells and pipes around production facilities. Other possible oil-services winners, according to the report: Baker Hughes Inc., BJ Services Co. and Weatherford International Ltd.

The industry could face costs, too, especially if any military action affects other business in the region. Halliburton says it suffered large losses in Kuwait, Qatar, Saudi Arabia and United Arab Emirates before and during the Gulf War, and restoring fields didn't make up for all it lost.

Short of a war, Deutsche Bank predicts, an end to United Nations sanctions on Iraq would lead to an opening of Iraq's oil sector, though perhaps not to U.S. companies. Despite U.N. sanctions that have prevented large-scale foreign investment, Mr. Hussein nonetheless signed $38 billion in oil-production agreements, including contracts with a Russian consortium led by OAO Lukoil -- which Iraq canceled only last month -- and China National Petroleum Co. Iraq has also signed less-binding memorandums of understanding with France's
TotalFinaElf SA
and Italy's
ENI
SPA, among others.

Wednesday, Russian diplomats and energy executives flew to Baghdad in a bid to repair commercial ties damaged by the scrapping of the Lukoil deal. Iraq revoked the agreement after reports that the Russian company was attempting to win guarantees from Washington that it could keep the reserves in a post-Hussein Iraq.

Deputy Foreign Minister Alexander Saltanov said the group would discuss "issues relating to economic cooperation ... including oil and gas," the foreign ministry said in a statement.

Executives from Lukoil and at least two other oil firms also planned meetings, and one company, closely held OAO Stroistransgas, even predicted it could sign a new contract to develop an oil and gas field in western Iraq. The energy delegation was the largest to travel to Iraq in months.

Baghdad has insisted that its cancellation of the Lukoil deal was meant to punish the company, not Moscow, and it may be eager to prove its readiness to work with Russian companies. In an effort to win Russia's help in ending U.N. sanctions, Mr. Hussein in recent years has promised Russian firms the rights to develop more than 25 billion barrels of oil. But none of the Russian firms has begun investment because sanctions prohibit it.